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Understanding How Desktop Underwriting Works


When a mortgage lender evaluates a borrower’s application for a mortgage and the home that will be used as collateral and approves or rejects the loan request, the process is called underwriting. Desktop underwriting refers to automated tools that let loan officers quickly issue preliminary loan approvals and, after more information is added and verified by the lender, recommend final approval or rejection. Automated desktop underwriting is considered to be more fair than human evaluation and also speeds up the process. Consider working with a financial advisor as you pursue obtaining a mortgage.

Underwriting Basics

Underwriting is the process used by mortgage lenders when deciding whether to approve a loan request. It starts with gathering information from borrowers’ loan applications. This includes their income, assets, liabilities and credit history. Underwriters then add some additional data, such as appraised value of the home being purchased, and verify the information from borrowers. Next, they analyze the request to see if it meets with their loan guidelines and finally issue an approval or denial.

The entire process typically takes weeks. Gathering and verifying information is the most time-consuming part. It involves checking tax returns, verifying employment, scanning paycheck stubs, reviewing credit reports, reading account statements, obtaining appraisals and more to fill out all the information required by lenders.

Underwriting software is used to analyze information about a loan request and issue a recommendation. If the loan request is denied by the software, the borrower and loan officer may be able to fill in missing information, correct mistakes or otherwise modify the application and ultimately win approval.

Reliable pre-approvals require accurate information from borrowers. Generally, pre-approval means little risk of having financial problems derail a closing. However, home sellers who want to better evaluate buyers’ offers may want to request the full desktop underwriter report. Red flags such as income amounts rounded to the nearest $10,000 may suggest the application is not completely accurate and the pre-approval won’t hold up when subjected to more scrutiny during further underwriting.

Desktop Underwriter

Desktop Underwriter is the automated underwriting tool adopted by Fannie Mae, the Federal National Mortgage Association. Fannie Mae is the dominant player in the business of buying mortgages originated by large banks and other major private lenders, packaging them as mortgage-backed securities and selling them to investors. Because it is so important and influential, Fannie Mae’s underwriting standards are adhered to across the financial industry. Many loan officers use Desktop Underwriter to ensure their loans will be accepted by Fannie Mae.

Other automated underwriting tools also exist. For example, Freddie Mac, which does the same thing as Fannie Mae for smaller banks and loan originators, developed and uses a product called Loan Product Advisor.

Automated underwriters augment but don’t completely replace human judgment. Ultimate approval of a loan request is made by a human banker after comprehensive verification of information on an application and often relying on unique considerations, such as in-house lending standards.

Factors in Desktop Underwriting

Desktop underwriting evaluates many different factors about a borrower and a specific loan request in preparing its recommendations. Some of these factors focus on the borrower’s credit report. Others go well beyond the credit report.

Credit-related factors used by desktop underwriting include the length of the borrower’s credit history, late payments and delinquencies, accounts turned over for collections, foreclosures and bankruptcies. Other information, such as number and type of inquiries from lenders responding to requests for credit, is also included.

Beyond credit history, underwriting examines loan-to-value ratio, debt-to-income ratio, homeowner’s equity, the purpose of the loan, loan type, term, type of property and number of borrowers. It also looks at the source of the borrower’s income, such as whether it is from self-employment, whether the borrower will occupy the home and the property type.

Desktop Underwriting Benefits

Because it is driven by an impersonal algorithm, desktop underwriting is free of personal biases that may influence humans making an underwriting decision. This makes automated underwriting fairer to all types of borrowers.

Automated underwriting is also significantly faster than manual underwriting. For instance, lenders can generate pre-approval letters stating loan amounts, interest rates and other terms the same day by running loan application information through the automated underwriter.

Desktop underwriting is particularly important for pre-approval. This early step in the process of homebuying gives a home shopper a preliminary estimate of how much money he or she is likely to be able to borrow, which helps to indicate which homes to consider.

Pre-approval is not the same as final approval, which involves more thorough investigation and verification of information provided by borrowers. However, pre-approval for a specified loan amount does allow homebuyers to confidently shop for homes in price ranges that match their expected borrowing ability.

Bottom Line

Understanding How Desktop Underwriting WorksUnderwriting is the process lenders use to evaluate mortgage requests from borrowers. Desktop underwriting software speeds and improves the work of analyzing income, credit history and other information that produces preliminary loan approval. Desktop underwriting tools are also used for final loan approval after additional information is gathered, verified and analyzed.

Tips on Mortgages

  • Financial advisors can help borrowers with major borrowing decisions. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • When evaluating your mortgage options, calculate how much the payments will cost you over the life of the loan. This makes it easier to compare mortgage options when deciding between different lenders or loan types. Our mortgage calculator provides a payment breakdown and illustrates your payments over time based on your home price, down payment, interest rate and loan term.
  • Use SmartAsset’s mortgage comparison tool to compare mortgage rates from top lenders and find the one that best suits your needs.

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